PERSPECTIVES

Innovation is vital to insurers’ survival, but it’s not in their DNA. To get it, they’re turning to nimble FinTech start-ups at the edges of the industry.

Thomi Meyer is the Insurance Lead for Accenture in Europe, Africa and Latin America, and the Managing Director for Accenture Switzerland. He has long been an attentive follower of both global carriers’ innovation initiatives and the exciting new offerings that emerge from previously unknown, usually tiny enterprises. A recent trend, he reports, is that the two are getting together.

Why are insurance companies partnering with FinTech start-ups?

Meyer: In mature markets, growth is hard to come by. Carriers are recognizing that consumers are responsive to innovative products and services that are related to, but are ‘beyond’, insurance. Our research tells us that 61 percent of carriers are already offering non-insurance products, or plan to do so. But there’s a problem: most carriers are not very good at innovation, due mainly to their conservative nature and their legacy infrastructure that inhibits agility. And so they’ve realized they need to look outside the industry, or at least on the fringes. And this is why most of the Digital Transformers – as we call the 25 percent or so who see technological innovation as an opportunity to pursue growth by creating new sources of customer value – are either acquiring or partnering with creative young enterprises that have a fresh perspective on things and are nimble enough to make it happen quickly.

Are they just testing the water, or is this a serious strategic play?

Meyer: I suppose until about 2013 you could describe it as tentative, or exploratory. Then in 2014 we saw a sharp, almost five-fold increase in investment. The research company CB Insights estimates that almost $1.8 billion has been spent by insurance companies since 2010 on tech start-ups. Add to this the fact that just over $2 billion has been invested by new technology companies moving into the insurance industry – with things like policy-comparison engines, tech-enabled health coverage and insurance tools – and it’s clear that this is becoming an important trend in the industry, and potentially a very disruptive one. I believe, however, the jury is still out in the judgment of how serious these attempts are. After all, many carriers’ executives regard it as less risky to further optimize their current business models for the next couple of years or to the end of their term. Furthermore, I believe that for any large carrier, real transformation will mean a phase of potentially lower income. In my view it’s unavoidable that sooner or later these start-ups will eat into existing income and margin streams, thus cannibalizing some of the insurers’ existing business. I have heard too often the argument from the industry that “we seem to prefer the competition to cannibalize us, in order to create a need for change, than to suggest that we cannibalize ourselves.”

Do these agile newcomers pose a serious threat to the large, traditional insurance companies?

Meyer: The incumbents face all sorts of threats; they don’t need us to tell them that. The tech start-ups, at this stage, don’t have the critical mass to make a dent in the big insurers’ market share. But what they are doing is demonstrating to customers that there’s a different way of doing things, and this is making life uncomfortable for the incumbents. What’s more, as the Digital Transformers start partnering with them, or acquiring them, their innovations can be scaled up very rapidly, to the point where they do pose a serious threat. It’s the Digital Followers – the carriers that are still using digital technology primarily to optimize their existing products, processes and infrastructure – that face the greatest danger. And with the pace at which the marketplace is evolving, they may be caught flat-footed.

Could you give us some examples of Digital Transformers’ investments in FinTech?

Meyer: Well, if we look only at the European market – which I’m most familiar with – there are lots of interesting examples. AXA, the French global carrier, has launched a venture capital fund worth €200 million (US$220 million). Just one of its investments is Flyr, a San Francisco-based airfare forecasting start-up that can partner with travel intermediaries, credit card companies, and insurers offering fare-protection products. Then there’s Generali, Europe’s third-largest insurer, which plans to invest €1.25 billion ($1.37 billion) by 2019, in mobile payments and data analysis among other areas and is embarking on a collaboration with Discovery to jointly launch innovative services in health insurance. The French arm of Allianz recently announced a crowdfunding initiative to invest in start-ups and high-growth tech companies. It’s also teaming with Admiral, ERGO, Momentum, Unipol Group and Lloyd’s, together with the global tech accelerator Startupbootcamp, to mentor new enterprises and seek out the most promising insurance technology of the future. So you can see they’re taking innovation very seriously, and they’re looking outside of their walls to make it happen.

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